Notice2022-14875
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Fee Schedule
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Published
July 13, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 133 (Wednesday, July 13, 2022)</title>
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[Federal Register Volume 87, Number 133 (Wednesday, July 13, 2022)]
[Notices]
[Pages 41771-41774]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-14875]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-95215; File No. SR-CboeBZX-2022-036]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Its Fee Schedule
July 7, 2022.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on July 1, 2022, Cboe BZX Exchange, Inc. (the ``Exchange'' or
``BZX'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe BZX Exchange, Inc. (the ``Exchange'' or ``BZX'') proposes to
amend its Fee Schedule. The text of the proposed rule change is
provided in Exhibit 5.
The text of the proposed rule change is also available on the
Exchange's website (<a href="http://markets.cboe.com/us/equities/regulation/rule_filings/bzx/">http://markets.cboe.com/us/equities/regulation/rule_filings/bzx/</a>), at the Exchange's Office of the Secretary, and at
the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend its Fee Schedule applicable to its
equities trading platform (``BZX Equities'') by: (i) introducing a new
Step-Up Tier 3 and (ii) modifying the criteria in Single MPID Investor
Tier 1. The Exchange proposes to implement these changes effective July
1, 2022.
The Exchange first notes that it operates in a highly competitive
market in which market participants can readily direct order flow to
competing venues if they deem fee levels at a particular venue to be
excessive or incentives to be insufficient. More specifically, the
Exchange is only one of 16 registered equities exchanges, as well as a
number of alternative trading systems and other off-exchange venues
that do not have similar self-regulatory responsibilities under the
Exchange Act, to which market participants may direct their order flow.
Based on publicly available information,\3\ no single registered
equities exchange has more than 16% of the market share. Thus, in such
a low-concentrated and highly competitive market, no single equities
exchange possesses significant pricing power in the execution of order
flow. The Exchange in particular operates a ``Maker-Taker'' model
whereby it pays rebates to members that add liquidity and assesses fees
to those that remove liquidity.
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\3\ See Cboe Global Markets, U.S. Equities Market Volume
Summary, Month-to-Date (June 27, 2022), available at <a href="https://markets.cboe.com/us/equities/market_statistics/">https://markets.cboe.com/us/equities/market_statistics/</a>.
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The Exchange's Fee Schedule sets forth the standard rebates and
rates applied per share for orders that provide and remove liquidity,
respectively. Currently, for orders in securities priced at or above
$1.00, the Exchange provides a standard rebate of $0.00160 per share
for orders that add liquidity and assesses a fee of $0.0030 per share
for orders that remove liquidity. For orders in securities priced below
$1.00, the Exchange does not provide a rebate or assess a fee for
orders that add liquidity and assesses a fee of 0.30% of total dollar
value for orders that remove liquidity. Additionally, in response to
the competitive environment, the Exchange also offers tiered pricing,
which provides Members with opportunities to qualify for higher rebates
or lower fees where certain volume criteria and thresholds are met.
Tiered pricing provides an incremental
[[Page 41772]]
incentive for Members to strive for higher tier levels, which provides
increasingly higher benefits or discounts for satisfying more stringent
criteria.
Step-Up Tier 3
Pursuant to footnote 2 of the Fee Schedule, the Exchange currently
offers two Step-Up Tiers that provide Members an opportunity to qualify
for an enhanced rebate for liquidity adding orders that yield fee codes
B,\4\ V,\5\ and Y \6\ where they increase their relative liquidity each
month over a predetermined baseline. The Exchange notes that Step-Up
Tiers are designed to encourage Members that provide displayed
liquidity on the Exchange to increase their order flow, which would
benefit all Members by providing greater execution opportunities on the
Exchange. Now the Exchange proposes to add an additional Step-Up Tier 3
to footnote 2 of the Fee Schedule. Proposed Step-Up Tier 3 is as
follows:
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\4\ Orders yielding Fee Code ``B'' are displayed orders adding
liquidity to BZX (Tape B).
\5\ Orders yielding Fee Code ``V'' are displayed orders adding
liquidity to BZX (Tape A).
\6\ Orders yielding Fee Cody ``Y'' are displayed orders adding
liquidity to BZX (Tape C).
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<bullet> Proposed Step-Up Tier 3 offers an enhanced rebate of
$0.0032 per share for qualifying orders (i.e., orders yielding fee code
B, V or Y) where an MPID (i) has a Step-Up ADAV \7\ from May 2021
greater than or equal to 30,000,000 shares or MPID has a Step-Up Add
TCV \8\ from May 2021 greater than or equal to 0.30%; and (ii) MPID has
an ADV \9\ greater than or equal to 0.30% of the TCV \10\ or MPID has
an ADV greater than or equal to 35,000,000 shares.
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\7\ ``Step-Up ADAV'' means ADAV in the relevant baseline month
subtracted from current ADAV. ADAV means average daily added volume
calculated as the number of shares added per day and is calculated
on a monthly basis.
\8\ ``Step-Up Add TCV'' means ADAV as a percentage of TCV in the
relevant baseline month subtracted from current ADAV as a percentage
of TCV.
\9\ ``ADV'' means average daily volume calculated as the number
of shares added or removed, combined, per day. ADV is calculated on
a monthly basis.
\10\ ``TCV'' means total consolidated volume calculated as the
volume reported by all exchanges and trade reporting facilities to a
consolidated transaction reporting plan for the month for which the
fees apply.
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The Exchange notes that the Step-Up tiers, including proposed Step-
Up Tier 3, are designed to provide Members with additional
opportunities to receive enhanced rebates by increasing their order
flow to the Exchange, which further contributes to a deeper, more
liquid market and provides even more execution opportunities for active
market participants. The proposed change is designed to give Members an
additional opportunity to receive an enhanced rebate for orders meeting
the applicable threshold. Furthermore, the proposed Step-Up Tier 3 is
designed to increase the Members' provision of liquidity to the
Exchange, which increases execution opportunities and provides for
overall enhanced price discovery and price improvement opportunities on
the Exchange. Increased overall order flow benefits all Members by
contributing towards a robust and well-balanced market ecosystem.
Single MPID Investor Tier 1
The Single MPID Investor Tier set forth under footnote 4 of the Fee
Schedule provides an enhanced rebate of $0.0032 \11\ or $0.0033 \12\
per share for qualifying orders which yield fee codes B,\13\ V,\14\ or
Y.\15\ The Exchange proposes to amend the criteria necessary to achieve
Tier 1 under footnote 4 as described below. Currently, under Tier 1 a
Member may receive an enhanced rebate where their MPID has: (i) a Step-
Up ADV \16\ as a percentage of TCV greater than or equal to 0.10% from
May 2021 or the MPID has a Step-Up ADV greater than or equal to
8,000,000 shares from May 2021; and (ii) the MPID has an ADAV as a
percentage of TCV greater than or equal to 0.55% or the MPID has an
ADAV greater than or equal to 50,000,000 shares. The Exchange is
proposing to amend the criteria under Tier 1 as follows:
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\11\ An enhanced rebate of $0.0032 per share is paid to MPIDs
who satisfy the criteria in Tier 1 in Tape B securities.
\12\ An enhanced rebate of $0.0033 per share is paid to MPIDs
who satisfy the criteria in Tier 1 in Tape A or Tape C securities.
\13\ Supra note 4.
\14\ Supra note 4 [sic].
\15\ Supra note 6.
\16\ ``Step-Up ADV'' means ADV in the relevant baseline month
subtracted from current day ADV.
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<bullet> Proposed Single MPID Tier 1 offers an enhanced rebate of
$0.0032 or $0.0033 per share for qualifying orders (i.e., those
yielding fee codes B, V or Y) where an MPID (i) has a Step-Up ADV as a
percentage of TCV greater than or equal to 0.10% from May 2021 or has a
Step-Up ADV of 10,000,000 (as compared to 8,000,000) from May 2021; and
(ii) has an ADAV as a percentage of TCV greater than or equal to 0.50%
(as compared to 0.55%); or MPID has an ADAV greater than or equal to
45,000,000 (as compared to 50,000,000).
The Exchange believes that Members who strive to achieve the
proposed amended Single MPID Tier 1 criteria continue to be
incentivized to increase the overall amount of liquidity provided on
the Exchange, both add and remove volume, thereby contributing to a
deeper and more liquid market and providing more execution
opportunities to market participants. Incentivizing an increase in both
liquidity adding volume and liquidity removing volume, through revised
criteria and enhanced rebate opportunities, encourages liquidity adding
Members on the Exchange to contribute to a deeper, more liquid market
and to increase transactions and take execution opportunities provided
by such increased activity, together providing for overall enhanced
price discovery and price improvement opportunities on the Exchange. As
such, increased overall order flow benefits all Members by contributing
towards a robust and well-balanced market ecosystem.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Securities Exchange Act of 1934 (the ``Act'') and the rules and
regulations thereunder applicable to the Exchange and, in particular,
the requirements of Section 6(b) of the Act.\17\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \18\ requirements that the rules of an exchange be
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in regulating, clearing,
settling, processing information with respect to, and facilitating
transactions in securities, to remove impediments to and perfect the
mechanism of a free and open market and a national market system, and,
in general, to protect investors and the public interest. Additionally,
the Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \19\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\17\ 15 U.S.C. 78f(b).
\18\ 15 U.S.C. 78f(b)(5).
\19\ Id.
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In particular, the Exchange notes that volume-based rebates such as
those proposed herein have been widely adopted by exchanges,\20\
including the Exchange,\21\ and are equitable because they are open to
all Members on an equal basis and provide additional benefits or
discounts that are reasonably related to (i) the value to an exchange's
market quality and (ii) associated higher levels of market activity,
such as higher
[[Page 41773]]
levels or liquidity provision and/or growth patterns. The Exchange
believes the proposed Step-Up Tier 3 is reasonable, fair and equitable,
and not unfairly discriminatory because the proposed Tier provides an
additional opportunity for all Members to receive an enhanced rebate by
achieving the proposed threshold. Furthermore, the Exchange believes
that the proposed Step-Up Tier 3 is reasonable as it serves to
incentivize Members to increase their displayed liquidity adding volume
on the Exchange. Additionally, the Exchange believes that the proposed
amendments to Single MPID Tier 1 are a reasonable means to encourage
Members to increase their relative add and remove liquidity on the
Exchange each month over a predetermined baseline by offering Members
an enhanced rebate, albeit with slightly modified criteria. Greater add
volume order flow may provide for deeper, more liquid markets and
execution opportunities at improved prices, and greater remove volume
order flow may increase transactions on the Exchange, which the
Exchange believes incentivizes liquidity providers to submit additional
liquidity and execution opportunities. An overall increase in activity
deepens the Exchange's liquidity pool, offers additional cost savings,
supports the quality of price discovery, promotes market transparency
and improves market quality, for all investors.
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\20\ See EDGX Equities Fee Schedule, Footnote 1, Add/Remove
Volume Tiers.
\21\ See BZX Equities Fee Schedule, Footnote 1, Add/Remove
Volume Tiers.
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The Exchange further believes that the proposed Step-Up Tier 3 and
proposed changes to Single MPID Tier 1 represent an equitable
allocation of reasonable dues, fees, and other charges because the
threshold necessary to achieve the tiers encourages Members to add
increased liquidity to the Exchange and the Exchange believes the
proposed and current enhanced rebates, respectively, are commensurate
with the proposed thresholds. The Exchange also believes that the
proposal represents an equitable allocation of fees and rebates and is
not unfairly discriminatory because all Members will be eligible for
the proposed Step-Up Tier 3 and Single MPID Tier 1 enhanced rebates and
will have the opportunity to meet the tiers' criteria and receive the
corresponding enhanced rebate for each tier if such criteria is met.
Without having a view of activity on other markets and off-exchange
venues, the Exchange has no way of knowing whether these proposed
changes would definitely result in any Members qualifying for the
proposed Step-Up Tier 3 or Single MPID Tier 1. While the Exchange has
no way of predicting with certainty how the proposed changes will
impact Member activity, the Exchange anticipates one Member will be
able to compete for and reach the criteria under proposed Step-Up Tier
3 and anticipates three Members may be able to compete for and reach
the proposed amended criteria under Single MPID Tier 1. The Exchange
also notes that the proposed changes will not adversely impact any
Member's ability to qualify for reduced fees or enhanced rebates
offered under other tiers. Should a Member not meet the proposed new
criteria, the Member will merely not receive that corresponding
enhanced rebate.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
Particularly, the proposed Step-Up Tier 3 and proposed amendments
to Single MPID Tier 1 do not impose a burden on intramarket competition
that is not in furtherance of the Act in that each tier will be
eligible to all Members equally in that all Members have the
opportunity to submit orders in an attempt to satisfy the proposed
amended criteria and receive the enhanced rebates associated with each
tier. Furthermore, the Exchange believes that the criteria under
proposed Step-Up Tier 3 and the proposed amended criteria under Single
MPID Tier 1 will continue to incentivize Members to submit additional
liquidity to the Exchange and to increase their order flow on the
Exchange generally, thereby contributing to a deeper and more liquid
market and promoting price discovery and market quality on the Exchange
to the benefit of all market participants and enhancing the
attractiveness of the Exchange as a trading venue, which the Exchange
believes, in turn, would continue to encourage market participants to
direct additional order flow to the Exchange. Greater liquidity
benefits all Members by providing more trading opportunities and
encourages Members to send additional orders to the Exchange, thereby
contributing to robust levels of liquidity, which benefits all market
participants.
The Exchange believes the proposed Step-Up Tier 3 and proposed
amendments to Single MPID Tier 1 do not impose a burden on intermarket
competition that is not necessary or appropriate in furtherance of the
purposes of the Act. The Exchange does not believe that the proposed
changes represent a significant departure from pricing currently
offered by the Exchange or pricing offered by other equities exchanges.
Members may opt to disfavor the Exchange's pricing if they believe that
alternatives offer them better value. Accordingly, the Exchange does
not believe that the proposed changes will impair the ability of
Members or competing venues to maintain their competitive standing in
the financial markets. As previously discussed, the Exchange operates
in a highly competitive market. Members have numerous alternative
venues that they may participate on and direct their order flow,
including other equities exchanges, off-exchange venues, and
alternative trading systems. Additionally, the Exchange represents a
small percentage of the overall market. Based on publicly available
information, no single equities exchange has more than 16% of the
market share.\22\ Therefore, no exchange possesses significant pricing
power in the execution of order flow. Indeed, participants can readily
choose to send their orders to other exchange and off-exchange venues
if they deem fee levels at those other venues to be more favorable.
Moreover, the Commission has repeatedly expressed its preference for
competition over regulatory intervention in determining prices,
products, and services in the securities markets. Specifically, in
Regulation NMS, the Commission highlighted the importance of market
forces in determining prices and SRO revenues and, also, recognized
that current regulation of the market system ``has been remarkably
successful in promoting market competition in its broader forms that
are most important to investors and listed companies.'' \23\ The fact
that this market is competitive has also long been recognized by the
courts. In NetCoalition v. Securities and Exchange Commission, the D.C.
Circuit stated as follows: ``[n]o one disputes that competition for
order flow is `fierce.'. . . As the SEC explained, `[i]n the U.S.
national market system, buyers and sellers of securities, and the
broker-dealers that act as their order-routing agents, have a wide
range of choices of where to route orders for execution'; [and] `no
exchange can afford to take its market share percentages for granted'
because `no exchange possesses a monopoly, regulatory or otherwise, in
the execution of order flow from broker dealers'. . .''.\24\
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\22\ Supra note 3.
\23\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
\24\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010)
(quoting Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-
21)).
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A) of the Act \25\ and paragraph (f) of Rule 19b-4 \26\
thereunder. At any time within 60 days of the filing of the proposed
rule change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission will institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.
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\25\ 15 U.S.C. 78s(b)(3)(A).
\26\ 17 CFR 240.19b-4(f).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#7103041d145c121e1c1c141f0502310214125f161e07"><span class="__cf_email__" data-cfemail="fe8c8b929bd39d9193939b908a8dbe8d9b9dd0999188">[email protected]</span></a>. Please include
File Number SR-CboeBZX-2022-036 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-CboeBZX-2022-036. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-CboeBZX-2022-036 and should be submitted
on or before August 3, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\27\
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\27\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-14875 Filed 7-12-22; 8:45 am]
BILLING CODE 8011-01-P
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